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India’s energy sector is at crossroads. On the one hand, there is a growing realisation (followed by more determined policy action) that prices of electricity need to be rationalised, and on the other, the huge spike in prices of key fuels like coal and natural gas sourced from a variety of destinations — domestic and overseas — is threatening an emerging regime where fuel costs would be a pass-through item for energy majors. In the second part of a series on fuel choices for the thermal power sector, FE dwells on what constrains domestic coal output and how to remedy the situation

Coal India, the country's monolithic commercial miner, beneficiary of an opaque pricing policy largely separated from global market, is reporting flat production growth over the last half a decade at least. It takes refuge under the Coal Mines Nationalization Act, which keeps competition from the private sector at bay, and smugly refrains from the potentially production-enhancing underground mining, citing India's geological conditions.

Circumventing the politically volatile proposal of allowing private players in commercial coal mining, the government has made some efforts to bring more players into the sector — by allocating captive coal mines to PSUs and private coal users (it's another matter the process of allocation has received flak from the CAG and the Supreme Court for its non-transparency and alleged arbitrariness) and allowing commercial coal mining on a limited scale by state-level public-sector entities.

But it is very clear that these have had only limited impact and the global mining giants like Rio Tinto and BHP Billiton would settle for nothing less than commercial coal mining licences when it comes to investing in India's coal sector. Of course, the Centre is now planning to introduce a modified public-private partnership (PPP) model to boost coal production, which would involve a concession agreement between CIL and private firms, where sale of fuel would continue to be the PSU’s prerogative. The government hopes that long-term concession agreements of 30-35 years would allow technological investment by global players in India's coal sector, without violating the sanctity of the Coal Mines Nationalisation Act. Few analysts would, however, bet on even this modified model.

Under pressure to meet industry’s rising coal demand, CIL is now scouting for coal assets abroad. Backed by a war chest of $ 6.3 billion (R35,000 crore), the company is focusing on coal-rich countries Australia, Indonesia, Mozambique,